Alcoa Primed for Aluminum Surge

Alcoa(AA), the third largest producer of aluminum in the world, may be among metal stocks best position to benefit from rebounding production and pricing for aluminum this year.

The metal averaged $1,420 per metric ton for spot delivery on the London Metal Exchange in January 2009, touched a high of $2,342.75 in January this year and is currently trading at $2,105 per ton. Alcoa, Aluminum Corporation of China(ACH), and Alumina(AWC) have already logged-in handsome gains during this rally, which saw their shares soaring 167%, 121%, and 187%, respectively.

Alcoa is preparing to handle increased aluminum demand by joining with Saudi Arabian Mining Co. (Ma'aden) in December to build a $10.8 billion aluminum complex to target the Middle East region starting 2013.

Aluminum Corp., China's largest maker of aluminum, demonstrated further confidence in the outlook for the metal by announcing plans this month to develop and operate a $1 billion smelter in Malaysia in collaboration with billionaire Syed Mokhtar Al-Bukhary. The smelter will have an initial annual production capacity of 330,000 metric tons that will eventually increase to 1.25 million tons.

After declining 14% during 2009, world aluminum production is likely to increase by 5% during 2010 to 38.5 million metric tons, according to forecasts by the Australian Bureau of Agriculture and Resource Economics (ABARE). A number of smelters that reduced output or shut down earlier are likely to restart or increase production during the year in response to the expected 8% increase in consumption.

Furthermore, ABARE forecasts an 18% increase in aluminum prices during 2010 when compared to a 34% decline last year.

Alcoa's bright future